Shares of Yandex (NASDAQ:YNDX) initially rallied on Thursday after the company reported earnings. However, YNDX stock ended the day down, falling over 3% in the session.
The response came after it beat revenue expectations and grew sales by almost 40% year-over-year. However, earnings results came up short for the Russian internet search giant and that kept investors’ enthusiasm limited. So what should investors do? Is YNDX stock a buy?
Yandex Earnings
Earnings of 15.11 rubles came up short of the 15.36 ruble estimate from analysts. However, sales were impressive as Yandex is still very clearly in growth mode. From CEO Arkady Volozh:
“I am pleased to report a strong second quarter, with accelerating revenue growth and significant product introductions. We extended beyond traditional computing platforms with the introduction of Yandex.Station, the first smart speaker developed for the Russian market, and we launched Yandex.Plus, a subscription-based membership program that provides access to a bundle of Yandex services.”
Yandex has a number of different products and services, as you see by Volozh’s comments above. I emphasized the last portion of his comments, as bundled subscription businesses tend to do well. Look no further than Adobe Systems (NASDAQ:ADBE) to see how lucrative it can be. However, its flagship service is most certainly search, where more than 80% of its revenues are derived from. Sales for search grew 22% YoY for the second quarter, an acceleration from Q1.
Classifieds revenue doubled YoY, while Taxi revenue climbed more than 425% YoY, as both segments accelerated from the first quarter as well. In fact, the revenue growth here is very impressive and the quarter was quite good.
Valuing YNDX Stock
YNDX stock is not completely based on earnings, given that it’s revenue story is still so strong. With its growth, the valuation is somewhat reasonable to growth investors.
Shares trade at 38 times this year’s earnings, and while admittedly that is expensive, look at the numbers. Analysts expect sales to grow 29% this year and another 26% next year. Given the recent acceleration in revenue though, it’s possible those numbers are somewhat conservative.
On the earnings front, expectations call for full-year earnings of $1.08-per-share. That’s up about 30% from the year prior and analysts expect an acceleration in 2019, up to 50% earnings growth.
So, while 38X isn’t cheap, it’s also not insanely expensive. Consider that Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) trades at more than 30 times earnings and has lower growth in both metrics. The same can be said for Baidu (NASDAQ:BIDU), which trades at about 25 times earnings.
Are we saying YNDX stock is a screaming buy over GOOGL and BIDU? No, not at all. Google is a blue-chip tech giant with robust growth, a huge user base and multiple divisions with lots of potential. It’s also one of the most profitable companies in the country. But Yandex is at least worthy of being considered.
Trading YNDX Stock
So given the results, how do we trade YNDX stock? Shares are up about 16% so far this year and almost 20% over the past 12 months. In other words, it’s slowly but surely churning higher and that’s good for dip buyers.
Is this a dip to buy?
There is some reasonably strong resistance near this $39 level. Above that and YNDX stock can retest its highs in the mid-$40s. Yandex has three major moving averages — the 50-day, 100-day and 200-day moving averages — all within a dollar of each other near $36. There’s also a prior trend-line here. All of these catalysts should help keep YNDX stock above $35.50 to $36.
Below this mark and YNDX stock would become more concerning. Ultimate support sits down near $33, where trend-line support has been in place for almost a year. There are multiple ways to play Yandex right now, depending on how aggressive or conservative investors want to be.
I really like YNDX down at $33, but as long as it’s over this $35.50 area, bulls should feel relatively comfortable.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he was long ADBE.
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